The European Central Bank’s (ECB) first major climate stress test shows banks facing a hit of 70 billion euros (US$71 billion) from increasing natural disasters and sweeping changes across industries.
The figure totals credit and market losses in the worst scenario, which includes droughts, heat and floods, the ECB said yesterday.
It cautioned that the result “significantly understates” actual risks related to global warming, partly because climate shocks were not accompanied by a broader economic downturns and limited to specific portfolios.
Photo: Reuters
The ECB also found that 60 percent of banks do not yet have a climate risk stress-testing framework. Most lenders do not include climate risk in their credit-risk models, and just one in five consider it as a variable when granting loans.
“Euro-area banks must urgently step up efforts to measure and manage climate risk, closing the current data gaps and adopting good practices that are already present in the sector,” said Andrea Enria, chair of the ECB’s Supervisory Board.
A total of 104 banks participated in the wider exercise that has been presented as a learning opportunity for banks and regulators alike.
Yet the impact was far softer than many banks had expected and the industry is already using the results to lobby against efforts by some ECB officials keen for lenders to set aside more money to cover climate risks.
Last year’s traditional banking stress test, which modeled economic shocks and took into account the impact of the COVID-19 pandemic, saw almost 400 billion euros of credit and market losses across 50 banks.
Bloomberg reported earlier this week that the toughest hypothetical scenarios in the climate test did not result in losses that would make a meaningful dent in capital buffers at banks.
The ECB said while the results of the stress test would feed into its annual review of risks banks face, there would not be any direct impact on capital through the Pillar 2 guidance this year.
That might change in the future, said Frank Elderson, the Executive Board member who serves as vice chair on the ECB’s Supervisory Board.
“It’s clear that climate-related risks are among our top priorities,” he told reporters during a press conference.
“As with many new, emerging risks, it takes time to properly address them and we understand that. But it’s also true that as all material risks, climate-related factors will eventually be integrated in our risk-based supervisory approach,” he said.
The ECB found that almost two-thirds of banks’ interest income from non-financial corporate customers stems from greenhouse gas-intensive industries, with higher-emitting sectors accounting for 21 percent.
It also criticized that banks “barely differentiate” between various long-term scenarios on climate change, saying they are lacking “robust strategies” beyond reducing exposures to the most polluting sectors and supporting lower-carbon emitting businesses.
“While this is a good first step to closing the data gaps, banks need to step up their customer engagement to obtain more accurate data and insights into their clients’ transition plans,” the ECB said in a statement. “This is a precondition for banks to gauge and manage their exposure to climate risks going forward.”
China has claimed a breakthrough in developing homegrown chipmaking equipment, an important step in overcoming US sanctions designed to thwart Beijing’s semiconductor goals. State-linked organizations are advised to use a new laser-based immersion lithography machine with a resolution of 65 nanometers or better, the Chinese Ministry of Industry and Information Technology (MIIT) said in an announcement this month. Although the note does not specify the supplier, the spec marks a significant step up from the previous most advanced indigenous equipment — developed by Shanghai Micro Electronics Equipment Group Co (SMEE, 上海微電子) — which stood at about 90 nanometers. MIIT’s claimed advances last
Taiwan Semiconductor Manufacturing Co (TSMC, 台積電) has appointed Rose Castanares, executive vice president of TSMC Arizona, as president of the subsidiary, which is responsible for carrying out massive investments by the Taiwanese tech giant in the US state, the company said in a statement yesterday. Castanares will succeed Brian Harrison as president of the Arizona subsidiary on Oct. 1 after the incumbent president steps down from the position with a transfer to the Arizona CEO office to serve as an advisor to TSMC Arizona’s chairman, the statement said. According to TSMC, Harrison is scheduled to retire on Dec. 31. Castanares joined TSMC in
EUROPE ON HOLD: Among a flurry of announcements, Intel said it would postpone new factories in Germany and Poland, but remains committed to its US expansion Intel Corp chief executive officer Pat Gelsinger has landed Amazon.com Inc’s Amazon Web Services (AWS) as a customer for the company’s manufacturing business, potentially bringing work to new plants under construction in the US and boosting his efforts to turn around the embattled chipmaker. Intel and AWS are to coinvest in a custom semiconductor for artificial intelligence computing — what is known as a fabric chip — in a “multiyear, multibillion-dollar framework,” Intel said in a statement on Monday. The work would rely on Intel’s 18A process, an advanced chipmaking technology. Intel shares rose more than 8 percent in late trading after the
FACTORY SHIFT: While Taiwan produces most of the world’s AI servers, firms are under pressure to move manufacturing amid geopolitical tensions Lenovo Group Ltd (聯想) started building artificial intelligence (AI) servers in India’s south, the latest boon for the rapidly growing country’s push to become a high-tech powerhouse. The company yesterday said it has started making the large, powerful computers in Pondicherry, southeastern India, moving beyond products such as laptops and smartphones. The Chinese company would also build out its facilities in the Bangalore region, including a research lab with a focus on AI. Lenovo’s plans mark another win for Indian Prime Minister Narendra Modi, who tries to attract more technology investment into the country. While India’s tense relationship with China has suffered setbacks